Toyota: Situation Analysis and Decision Making

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Table of Contents

Symptoms, Problems, and Opportunities
Objectives Defined
Evaluation of Alternative Marketing Programs

Nature of demand. The nature of demand of the Toyota’s products is largely determined by the age of the buyers (an average Toyota owner is about 46 years old). Toyota’s larger luxury vehicles, such as Lexus, are effectively sold in the United States compared to Europe where stylish autos are preferred. Toyota has taken a lead by producing more eco-friendly car models such as the new eco-friendly Toyota’s Prius gasoline electric car, which saw dealers receiving over 10,000 advanced orders before its availability. The market can be segmented accordingly in terms of region and the age of the buyers.
Extent of demand. In the US market, Toyota enjoys its highest sales with its sales at 1.9 million, Europe at 756,000, Southwest Asia at 268,000 and 455,000 in South East Asia. In South America its sales stand at 97,000, Africa at 140,000, China at 58,000 and in Japan at 1.68 million vehicles. Its total volume sales are slightly above 11.2% of the total market. Its sales standing at $146 billion is the third highest in volume. Toyota relies on the United States market for over 70% of its sales. On a product-by-product basis, Toyota has almost 12% of the SUVs market and 4.5% of the pick up market share in the United States. Its stylish Yari brand has 4.4% share of European market.
Nature of competition. Toyota faces massive competition, especially from other major automakers including Nissan Motor Company, Ford, Chrysler, General Motors, and Honda. Toyota enjoys 11% of the United States market share. In terms of financial resources, Toyota is the largest capitalized company with a capitalization of $110 billion. Its capitalization is larger than the one of its three major competitors combined. Its operating margin being at 8% is also far much higher than for its competitors. In future Toyota targets to attain 15% of the market share by increasing its efficiency and utilizing its high production capacity to increase the products on offer to the market. Toyota’s luxurious sedans have lost grounds to BMW.
Environmental climate. Another visible trend likely to influence new sales is the trend towards demand for environment-friendly vehicles. This demonstrates high demand for the eco-friendly second-generation Prius model. The energy crisis is also likely to adversely affect the overall demand in vehicles. However, a social trend towards consumerism is likely to maintain the demand for luxurious vehicles.
Stage of product life cycle. Though some product categories including the luxurious SUV model, the Lexus is in growth stage in the United States, the eco-friendly Prius is at introduction stage. The market awareness of existence of new eco-friendly cars is high as evidenced by advance orders. The Prius is less than a year old.
Cost structure of the industry. Most of the company’s capital is tied in setting up new production facilities and in research and development of new products. In terms of the cost structure, the auto industry has a high marginal cost. In that case, the cost of supplying additional output is significantly higher in auto industry as compared to other industries. The effectiveness of a marketing program would take into consideration the cost structure. A marketing program would be more successful if marginal cost is retained at the least levels possible in the cost structure.
Skills of the firm. High level of skills is evidential in the company’s management of finance visible via its effective financial performance. Its success in overall is indicative of a strong management team. In general, compared to competitors, the company is superior in management and production and not so in marketing.
Financial resources of the firm. Toyota is the best capitalized automaker with $110 billion capitalization, which is higher than combination of Ford, Chrysler, and GM. The company has an additional cash and security hoard of $30 billion. Toyota posses the financial clout to support an effective marketing program. The funds for financing an effective marketing program may be readily available from the cash and security hoard.
Distribution structure. Toyota distributes its vehicles through its agents that receive orders from consumers. Sales for the Toyota Lexus would especially improve if exclusively distributed through new dealerships that offer the type of personalized service that would establish loyalty of Europeans to the brand. The high-end luxury vehicles have higher profit margins as indicated by the over $10000 the company makes in profits for each vehicle. Competition between channels is minimal.

Symptoms, Problems, and Opportunities

Key problem areas

Toyota faces inability to gain a youthful age group in its customer base. Toyota risks losing its future market share if it does not appeal to young target audience. The market perception that Toyota brands are bland is not good for the company’s future sales and is also a major reason for its inability to attract the youthful market. Another key problem area is the culturally insulated and slow decision-making leading to lost opportunities.

Key opportunities

The demand for new car models, which are more eco-friendly, is likely to lead to higher sales and potential market growth. Other opportunities also still exist for vehicles designed for the younger population.

Current situation

On balance, the situation is somewhat favorable. The risk posed by the age factor, increased competition and so on means Toyota must work extremely hard to achieve the set targets of 15% of the world auto market by the 2010.

Objectives Defined

Target market segments

The company must target a more youthful market to continue with its growth. Luxurious vehicles are of high priority to gain a place in the European market. A market segment for the eco-friendly vehicles should be developed as well.

Volume to be sold

The company may realize superior sales by raising the market sale in terms of product sales volume or in terms of total dollar volume sales. In targeting to attain higher sales in dollar terms, the company may target to make higher returns per unit. In this case, the company may focus on sales of high-end vehicles that generate higher returns per unit as compared to other classes of vehicles.

Profit analysis

The company should target to achieve a high return on investments. It should aim to break even within the shortest time possible.

Evaluation of Alternative Marketing Programs

Alternative one. The company should produce new and more appealing designs targeting the youthful market. The solution’s drawback is that it does not address the high-end sales challenge in European markets. Its advantage is that by taking into consideration the its future sales, the company may use the opportunity to establish loyalty among its future buyers.
Alternative two. The company should produce more eco-friendly vehicles because of climate issues. The company should continue to use current distribution channels to reach the market. The company is a pioneer in producing eco-friendly vehicles, though the European market and the young target audience are not met.
Alternative three. The pricing should be higher especially for high-end luxurious vehicles to match the expected attitudes on pricing where buyers may perceive cost to reflect quality. Selling to the European market should be done using different channels especially for the high-end vehicles.
Alternative four. The company should concentrate on fast moving high margin products such as the SUVs in order to get higher return. The price should be high to acquire high profit margins. Competitors may come in and produce products of similar quality at cheaper prices. The advantage is that it may achieve higher rate of return on investment.

Decision

It is necessary to have a product mix that suits the younger market, ensuring that the company creates better and more appealing product designs aligned to the changes in tastes and preferences in the global market. Pricing models should differentiate luxurious autos from those aimed at making Toyota available for young people. The company should ensure that its products are availed to different markets through an appropriate distribution channel dependent on the model. High end luxury vehicles distribution should reflects such a difference especially in the European market where this is visibly a clear challenge. Toyota must also promote its products on a brand level, product-by-product basis emphasizing differentiating factors of different brands especially to the youthful market, which is crucial in affecting future sales as compared to the company as a brand.

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